The stock of Bottomline Technologies (NAS:EPAY, 30-year Financials) shows every sign of being modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $37 per share and the market cap of $1.7 billion, Bottomline Technologies stock is estimated to be modestly undervalued. GF Value for Bottomline Technologies is shown in the chart below.
Because Bottomline Technologies is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 4.7% over the past three years and is estimated to grow 7.22% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Bottomline Technologies has a cash-to-debt ratio of 0.88, which which ranks worse than 72% of the companies in Software industry. The overall financial strength of Bottomline Technologies is 5 out of 10, which indicates that the financial strength of Bottomline Technologies is fair. This is the debt and cash of Bottomline Technologies over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Bottomline Technologies has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $459.9 million and loss of $0.28 a share. Its operating margin is -0.74%, which ranks in the middle range of the companies in Software industry. Overall, GuruFocus ranks the profitability of Bottomline Technologies at 3 out of 10, which indicates poor profitability. This is the revenue and net income of Bottomline Technologies over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Bottomline Technologies is 4.7%, which ranks in the middle range of the companies in Software industry. The 3-year average EBITDA growth rate is 21%, which ranks in the middle range of the companies in Software industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Bottomline Technologies's return on invested capital is -0.83, and its cost of capital is 9.32.
Overall, Bottomline Technologies (NAS:EPAY, 30-year Financials) stock shows every sign of being modestly undervalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the middle range of the companies in Software industry. To learn more about Bottomline Technologies stock, you can check out its 30-year Financials here.
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